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Luxembourg: Engine-room of the tax-break economy

Giant auditors fingered for helping globals dodge taxes

By Richard Chirgwin, 6 Nov 2014

Four high-profile audit firms have been named-and-shamed as architects of a tax minimisation structure used by hundreds of the world's big-name companies, including a slew in the tech sector.

The International Consortium of Investigative Journalists has published details of how the structure worked, along with identifying many of the companies involved, here. Its “Luxembourg Leaks” investigation says PwC, KPMG, Ernst & Young and Deloitte help clients craft “an array of cross-border transactions” designed to cut clients' tax bills (often to zero).

Luxembourg is a key player in this, the leaks allege, by allowing companies to negotiate secret tax deals that cover handling of royalties, treatment of inter-company loans, interest-free and micro-interest loans, hybrid loans (a way to realise profits as capital for tax purposes), “total swap return” arrangements, hidden contributions (attributing fees paid to one company to another company in a tax haven), and dodgy branch office tax treatments.

The Luxembourg tax rulings are described by the ICIJ as being worth billions of dollars in taxes not paid by global firms.

As its online database shows, tech sector companies whose documents have been leaked to the ICIJ include Accenture, Apple, Amazon, Hutchison Whampoa, Intelsat, Vodafone, Verizon and many others.

It should be noted that not all the companies named in the database have had special rulings published: for example, the only document provided for Apple is a tax return rather than a ruling.

Some of the arrangements had already come to light. Amazon, for example, is already under investigation over its Luxembourg tax deal.

According to the Australian Financial Review PwC is blaming the document dump on an ex-staffer, saying the documents “were taken unlawfully by a former employee of the Luxembourg firm who then selectively provided them to the media”.

The AFR provides IKEA as a case study in how the arrangements work.

Other companies singled out by the ICIJ include PepsiCo and FedEx. As the finance sector press pores over the documents, El Reg expects this story will have plenty of legs in it. ®

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